Working Group Paper #18 - Energy Sanctions: Four Key Steps to Constrain Russia in 2024 and Beyond

In the past, we focused on advocating for a downward ratchet in the oil price caps.2 Specifically, we argued that cutting the oil price cap to as low as $30/barrel would still preserve the Russian incentive to supply, given the low lifting cost of Russian oil, while reducing export earnings to a level which would severely constrain Russia, and bring the war to an early end. [...] The price fell below the $60/barrel price cap in December for the first time since the first half of 2023, and the discount to Brent widened once again (see Figure 3), in response, we think, to recent enforcement actions by the G7, including the blocking by OFAC of 25 tankers active in Russia’s shadow trade. [...] To achieve this end, we propose to strengthen the oil price cap regime and ratchet the oil price caps to $50/barrel on crude, to ban Russian LNG and gas flows to Europe, and to cut Russian oil and gas off from access to Western technology and services. [...] RATCHETING THE PRICE CAP DOWN TO $50/BARREL The objective of the oil price cap regime is to allow the continued flow of Russian oil to the market, avoiding a global supply shock, while reducing Russia’s oil and gas revenues, and therefore Russia’s ability to wage war on Ukraine. [...] In oil, Russian crude and product exports to Europe have fallen dramatically, and all bar one of the remaining exemptions will be eliminated this year: Bulgaria plans to end its import of Russian seaborne crude in March 2024, the Czech and Slovak Republics plan to end their imports of Russian crude along the southern Druzhba pipeline at the end of 2024 when the expansion of the TAL pipeline to pro.